Tesco’s Strategic Management Processes: SWOT Analysis

Introduction:

Tesco was founded by Jack Cohen in 1919 when he started to sell surplus groceries from a stall in the East End of London from which he earned a profit of £1 from sales of £4 on his first day. After 10 years, in 1929, Jack Cohen opened his first Tesco Store in Burnt Oak, Edgware, North London (http://www.tescoplc.com).

Strategic management theory

“Strategic management refers to the art of planning the business at the highest possible level. It is the duty of the company’s leader or leaders to implement the strategic management focuses on building a solid essential structure to your business that will consequently be fleshed out through the collective labours of every individual was employed” (www.allbusiness.com).

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Strategic management hinges upon answering three key questions:

1. What are the business’s objectives?
2. What are the best ways to achieve those objectives?
3. What resources are required to make that happen? (www.allbusiness.com)

Strategic business environment

PESTEL Analysis of Tesco:

• Political Factors:
  Tesco is now operating in seven countries in the Europe including the UK, the Republic of Ireland, Czech Republic, Hungary, Slovakia, Poland and Turkey. It also operates in the South East Asia including China, Japan, South Korea, Malaysia and Thailand (www.tescoplc.com). Tesco perform according to the political and legislative rules of all of these countries. With the influence of the Government’s employment legislation Tesco employs following the equal opportunity employment policy (Doyle 1987). For employment legislations, the government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (Balchin, 1994).
• Economical Factors:
  The economic environment includes interest rates, inflation, business cycles, unemployment, disposable income and energy availability and cost (Kaplan, 2007). Keeping these factors in mind Tesco implemented the strategy of marketing mix to continue the steady growth in the UK local market and in the International business. In the recent credit crunch due the high unemployment levels Tesco tried to keep the price of the most of the products in the range of the customers by lowering the cost and the profit (http://ivythesis.typepad.com).
• Social or Cultural Factors:
  Social factors change the buying behaviour of the customers. Like the British customers moved towards bulk shopping to get cheaper unit price. Due to female workers in the city areas the big retail shops increases ready meal to the office going customers. They may also include changes in the demographic make-up of a population (Kaplan, 2007). In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions, Tesco’s Rama IV store in Bangkok tries to meet local customers’ expectations (www.tescoplc.com).
• Technological Factors:
  Technological factors changed the retailing methods, like direct selling through cash or Debit/Credit card from in-store and/ via internet. Tesco stores use the following technologies all over the world:

• Integrated link-up computers within the stores
• Electronic shelf labelling
• Self check-out to reduce the queue of the customers
• Barcode reader for every products
• Electronic point of sale
• Electronic Funds Transfer Systems

• Environmental/ Ecological Factors:
  Tesco encourages re-using the shopping bags, plastic bottles, paper boxes and other recyclable products by gaining more and more club card points. This include product stewardship, which considers all raw materials, components and energy sources used in the product and how more environmentally friendly substitutes could be used (Kaplan, 2007). Tesco also like to sell the organic foods to the customers in their affordable price range.
• f) Legal Factors:
  “Various government legislations and policies have a direct impact on the performance of Tesco. For instance, the Food Retailing Commission (FRC) suggested an enforceable Code of Practice should be set up banning many of the current practices, such as demanding payments from suppliers and changing agreed prices retrospectively or without notice” (Mintel Report, 2004). “The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. The government’s policies for monopoly controls and reduction of buyers’ power can limit entry to this sector with such controls as license requirements and limits on access to raw materials” (Mintel Report, 2004; Myers, 2004). In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. While prices are lowered on promoted goods, prices elsewhere in the store are raised to compensate.” (www.ivoryresearch.com)

SWOT analysis of Tesco

     Strengths

TESCO have protected commercial standing in the place of global market and achieved Retailer of the Year 2008 at the “World Retail Awards”. It may be used for marketing campaigns to get advantage for future development and sustainability. Where global retail sales are declining, TESCO have announced sales gain of 13% for UK markets and 26% growth in international markets (www.businessteacher.org.uk).

     Weaknesses

TESCO Finance income levels were affected by bad debt, credit card arrears and household insurance claims. Grocer outlets are not set up to activate as expert retailers in specific areas of product that can be capitalised on by other smaller customized retailers. TESCO is a low price leader in UK markets which can lead to reduced profit (www.businessteacher.org.uk).

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     Opportunities

TESCO is the third largest global grocer that indicates a level of retail power to ensure conventional economies of scale. The acquirement of Homever provides the prospect to develop the brand through Asia, particularly South Korea and further grow International markets for TESCO. The development of Tesco Direct through online and catalogue shopping will grow the use of technology, providing the launch pad for larger non food based items with reasonable to high margin profits and less focus on sales and margin per foot return to space. TESCO mobile have developed ¼ million clients in 2008 and encouraged into profitable status suggesting further growth and expansion within this technological area can be developed (www.businessteacher.org.uk).

     Threats

UK and American markets have been affected by economic concerns through the “credit crunch”. Lower available profits will impact and strategic focus may need to change to lower priced fundamental products with less focus on higher priced brands telling a switch in price architecture. Growing raw material costs from both food and non food will affect overall profit margins. Require further analysis for changes to consumer buying manner because technology develops consumer buying habit and it is need to evaluation (www.businessteacher.org.uk).

     Strategic capability of Tesco

Strategic capability is quite simply the capacity of a business to continue to exist, grow and deliver future importance. Clarity of thinking and action in objectives and strategy; evidence of strategy in action and strategic progress in operational attainment; sensitivity to the future and to the impact of convenient and uncontainable trends and factors upon future performance; venture in capital, strengths and less concrete drivers of value; and, an approach to social ethical and environmental matters that is important to the strategy of the business (www.futurevalue.co.uk)

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     Expectation and purpose

Tesco’s main purpose is to create value for customers to earn their lifetime loyalty Tesco believes that it continually demonstrate that it is good at getting things done, good at ‘what’ it does, and it takes pride in being good at the way in which it achieve the target (www.tesco.com). As an example, Tesco’s shares were trading at 369.6p in the month of August 2009, increased to 421p mid of the month of January 2010 which shows the reliability of Tesco in the share market. Numerous analysts stated that with a good sales performance in the UK with its loyal brand, Tesco observer can now get on with looking at the big picture (www.telegraph.co.uk). There is far more to Tesco than UK shops – it has stores in more than a dozen other countries, has a sizeable and growing banking arm and a large non-food operation. Analysts believed that the year 2010 will be a good year for Tesco. They expected that Tesco’s massive investment in its overseas operations will start to pay off within that year. Encouraging growth in Asia and the US was reported over Christmas 2009 and the chain will open its long-anticipated venture in India in the year 2010 (www.bbc.co.uk). It is pushing on with an ambitious expansion in China too. These two markets presented a strong opportunity for the retail chain. Tesco had also invested millions of pounds in the Information Technology platforms for its fledgling banking arm, which is set to launch current accounts which is expected to become a significant source of the revenue (www.telegraph.co.uk)

     Strategic choose of Tesco

     Business level strategy

Tesco has a well-established and consistent strategy for growth, which has allowed the organisation to strengthen its core UK business and drive extension into new markets. The grounds for the strategy is to widen the scope of the business to enable it to deliver strong sustainable long-term growth by following the customer into large expanding markets at home – such as financial services, non-food and telecoms – and new markets abroad, initially in Central Europe and Asia, andmore recentlyin the United States (www.tescoplc.com). The strategy of Tesco had diversified the business was laid down in 1997 and has been the foundation of Tesco’s success in recent years. The new businesses had been shaped and developed over the last 12 years from the year 1997. As part of the strategy which established Tesco as a market leader in many of its markets inside and outside of the UK. The Group has continued to make good advancement with the strategy, which has five elements, reflecting its four established areas of focus, and also Tesco’s long-term commitments on community and environment (Lowe, 2009).

The objectives of the strategy are as followed:

• “To be a successful international retailer
• To grow the core UK business
• To be as strong in non-food as in food.
• To develop retailing services – such as Tesco Personal Finance, Telecoms and Tesco.com
• To put community at the heart of what we do” (www.tescoplc.com).

Corporate level and international

The full appearance of international retailing is not as simple as it may happen within a short period of time; it requires a long term approach. Over more than ten years of experience overseas, Tesco has stated a strategy based on six elements:

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1. Be flexible
2. Act local
3. Maintain focus on a few countries
4. Use multi-formats
5. Develop capability
6. Build brands (www.Tescocorporate.com)

By the year of 2002 Tesco was operating 174 stores in Eastern Europe and Asia, most of them hypermarkets; they represented 42 per cent of the group’s total selling space. As it was presented that the UK remained by far the most important source of Tesco’s profits, and the aim was to keep ahead through innovation with unique differentiation was a prize that can only be won by continually being first. Tesco has followed its customers into the growing world of retailing services. Its aim was to bring simplicity and value to complex markets (www.tescofinance.com).

Change management within Tesco

Tesco has become Britain’s most successful food retailer, send-off most of its competitors in its rising. It was predicted in the year of 1999, a decade before that the company was regarded as falling behind. In order to be a success, the company had to build bigger and better stores, place higher priority on customer services, change management attitudes and revise their store culture (www.orsoc.org.uk). A pilot programme exposed in a research that the stores and store managers were performing at a lower level than their competitors. As an example the store managers’ performance was 75 per cent below that of other retail managers. Between Tesco and Verax, one of the World Leader in Business Performance Information, Diagnostic, Measurement & Support Systems, designed a development programme for all store managers and departmental managers in the stores of Tesco to put into practice a programme to measure their performance and the Stores performance. The measure covered five areas:

• “Managers attitudes
• Managers management skills
• Retail-specific skills, including customer service
• The rewards system used (e.g. praise and recognition of pay/bonus)
• The store culture” (www.orsoc.org.uk).

Now a day’s Tesco had developed its own in-house materials as the next move on from the Verax model. It is clear that the cultural changes taking place within Tesco as a whole are continuing. After the inter-company surveys held in the year 1993 cross functional workshops have been stopped now and the line managers are taking on the progression themselves (www.orsoc.org.uk).

Corporate culture of Tesco

Corporate culture is one of the main determinants of achievement or disappointment in a business development practice, because it mainly determines how flexible, accommodating of change and pioneering a company tends to be (www.itchybrainscentral.com). Fairfield-Sonn (2001: 36) “provided a four-layer model of corporate culture which includes cultural artefacts, cultural history, core ideology and core values that helps to quantify and describe the corporate culture of an organization. Therefore, Tesco’s corporate culture can be resolute from its corporate responsibility statements, which describe its main values and core ideologies as well as some aspects of cultural artefacts. Tesco’s corporate culture priorities allowed the company to consider opening stores in areas where native supermarkets were hesitant to go, and to provide services to the area that the local providers either couldn’t or didn’t consider. Thus, they opened stores in underserved regions, not only allowing them to express their core ideals, but also providing an opportunity to enter an almost untapped market. Although native retailers have twisted to enter the markets in which Tesco is now providing services in the United States, Tesco will continue to have the advantage in terms of the markets it has already entered; it also has a corporate culture that encourages the extension and service of these areas” (www.itchybrainscentral.com)

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Knowledge management of Tesco

Knowledge management is treating the knowledge component of business behavior as a clear concern of business reflected in strategy, policy, and practice at all levels of the organisation (http://www.media-access.com). Tesco and its competitor Wal-Mart are both masters of enterprise knowledge management, especially as relates to their POS (point-of-sale) data. The two firms influence the same skills – data mining & analysis – to drive their achievement, but use the skill in slightly different ways (http://tscg.biz).

Knowledge management is not only about information; it is also about the people the company has recruited, trained, developed, and promoted within the organization. KM involves not only the implementation of a software system; it involves understanding your business needs, your organization’s culture, and your personnel. To succeed, any KM initiative requires that you know your people and clearly define the behaviors that need to be changed or reinforced (www.connectioneconomy.com).

Conclusion

Over more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:

• Be flexible – each market is unique and requires a different approach.
  According to (Heizer and Barry. 2006), proximity to competitors (clustering) is important to get the customer base. In Tokyo, customers like to shop for small amounts of extremely fresh food, every day. Existing hypermarket formats don’t meet the needs of local customers, so Tesco’s entry into the Japanese market was through the acquisition of a discount supermarket operator.
• Act local – local customers, local cultures, local supply chains and local regulations require a tailored offer delivered by local staff.
  Locating a company in a different country need to deal its local cultures, and local staff. In that case company need to be ware about the local government policies, and labour productivity. Employees with poor training, poor education, or poor work habits may not be a good buy even at low wages. In Thailand, customers are used to shopping at traditional wet markets, interacting with vendors and rummaging through piles of produce to choose what they want. Rather than adopting the Western approach of neatly packaged, convenient portions. So Tesco tries to meet local customers’ expectations.
• Use multi-formats – no single format can reach the whole of the market. A whole spectrum from convenience to hypermarkets is essential and company need to take a discounter approach throughout
• Tesco have a wide range of business all over the world, for diversify demand in various location. They are growing their non-food product business in different locations.
• Develop capability – It’s not about scale, it’s about skill – so Tesco make sure they have capability through people, processes & systems.
  Proximity of suppliers is another important issue for new location. For that when Tesco open new retail outlets they consider perish ability, transportation costs of a new location. They also train their stuff and improve their competence.
• Build brands – brands enable the building of important lasting relationships with customers. Brand image among the new location customers is very helpful to setup new location for any business. Tesco have an emerging brand image, so most of the customer in the probable location already knows about Tesco products. That’s how Tesco easily get a strong customer base for new location. (http://www.tescoplc.com)

To be a global retail leader Tesco is going ahead. Their successful management team implementing their total organisational strategy worldwide and maintaining steady growth every year. Though Tesco is an establish brand in but it needs to spend some more money in marketing to promote their brand outside UK. Especially the big market like USA they need to create their own brand rather than using some other name or brand. They enter in US market by using other name but it is also a part of their strategy.

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References

ACCA Paper 3 (2007). Business Analysis- Complete text, Berkshire: Kaplan Publishing.

Balchin, A. (1994). Part-time workers in the multiple retail sector: small change from employment protection legislation?, Employee Relations, Vol. 16 Issue 7, pp.43-57

Doyle, B (1987) Disabled Workers, Employment Vulnerability and Labour Law, Employee Relations Vol. 9 issue 5 pp 20-29

Fairfield-Sonn, J (2001) Corporate culture and the quality organization. London: Quorum Books.

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Heizer, J and Render, B (2006) Operation Management (8th edition), New jersey : Pearson Education.

Lowe, M (2009) Challenges in Retail Innovation Aspects of Innovation in Tesco plc’s Market Entry into the USA, Case study at http://www.managing-innovation.com/case_studies/Tesco.pdf

Mintel Report (2004). Food Retailing – UK, Retail Intelligence, November.

Myers H. (2004). Trends in the food retail sector across Europe, European Retail Digest, Spring, Issue 41, pp.1-3.

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http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/05/should_we_save_building_societ.html

http://www.businessteacher.org.uk/business-resources/swot-analysis-database/tesco-swot-analysis/

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http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6976691/Questor-share-tip-Tescos-figures-trump-all-expectations.html

http://www.tescoplc.com/plc/about_us/strategy/

http://www.tescoplc.com/plc/about_us/strategy/international/

http://www.orsoc.org.uk/orshop/(i3srha45nvdixbia444zierm)/orcontent.aspx?inc=article_news_tes.htm

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http://www.orsoc.org.uk/orshop/(i3srha45nvdixbia444zierm)/orcontent.aspx?inc=article_news_tes.htm

http://www.media-access.com/whatis.html

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http://tscg.biz/saintblog/2008/12/tesco-is-walmarts-worst-nightmare-turning-customer-data-into-rightsize-stores.html

http://www.connectioneconomy.com/2006/02/18/why-knowledge-management-fails/

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